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Joanne G. Tokle - One of the best experts on this subject based on the ideXlab platform.
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Mortgage Concentration Risk in a Small Depository Institution
Journal of Critical Incidents, 2014Co-Authors: Robert J. Tokle, Joanne G. TokleAbstract:As Professor John Tallon sat in his fourth-floor office overlooking the tree-lined campus of Northeastern State College (NSC) in December, 2012, his mind wandered from his task of grading term papers to the Board of Directors meeting for NSC Credit Union (NSC CU) scheduled for later that day. As a board member, he was elected to represent the students, faculty, staff, and alumni of NSC who were members of the credit union. NSC CU had emerged from the ashes of the 2008-2009 financial crisis virtually unscathed; yet Tallon felt uneasy as he considered the potential consequences of changing the credit union's policy on real estate loan limits, given the still fragile economy. The Board was about to consider whether or not to change NSC CU's internal policy limit on real estate loans. NSC CU's auto loan volume had recently declined, and with investments paying near-zero rates, it had been making more mortgage loans and had approached the allowable limit on real estate loans as a percent of assets. These real estate loans were currently profitable; credit risk was low with few delinquencies. However, the long-term nature of real estate loans engendered interest rate risk, which could endanger future profitability if interest rates increased. Tallon understood the ramifications of holding too many long-term assets during periods of rising interest rates. Unfortunately, it was not clear when interest rates would rise. Short-term interest rates had been near zero for the past four years, and in 2012, the Federal Reserve resolved to keep them there for another two to three years. Tallon wondered--should the credit union allow a greater proportion of assets in real estate loans, which, while profitable now, may eventually be a decision it would regret? Northeastern State College Credit Union NSC CU was a medium-sized credit union that had experienced modest growth and increased asset size, and maintained a healthy net-worth ratio (essentially a capital-to-asset ratio) of 9.1%. When assets increased, the denominator of this ratio became larger, making the overall ratio smaller. Net-worth ratios above 7% were considered well capitalized by the National Credit Union Administration (NCUA). Interest Rate Risk The two major types of risk Depository Institutions face were credit and interest rate risk. Credit risk occurred when borrowers default and the loans were not paid back in full. Interest rate risk occurred when changes in interest rates reduced profitability, as transmitted through the asset/liability structure. Typically, Depository Institutions had longer-term assets and shorter-term liabilities. When interest rates increased, Depository Institutions needed to increase interest rates on deposits to retain them; they can raise these rates quickly because deposits were very shortterm. New loans were also made at the higher rates, but loans already made tended to stay on balance sheets for some time since they had maturities of much longer than one year. Consequently, when interest rates increase, profitability was typically squeezed for banks and credit unions. A classic case of interest rate risk occurred in the Savings and Loan industry in the 1980s. High inflation led to higher interest rates and a tight Federal Reserve monetary policy. Rates on the 3month Treasury bill reached over 15% in 1981 (Mishkin, 2013). Savings and Loan Institutions had to pay higher rates on their deposits, while they could not re-price their previously made mortgage loans. The average rate paid on deposits by Savings and Loans in 1982 was greater than the average rate received on their loans. By 1989, 1,066 out of 2,878 Savings and Loan Institutions were unprofitable (White, 1991). NSC CU's Asset-Liability Management Committee (ALMC) monitored its assets and liabilities and proposed any needed interest rate and policy changes to the NSC CU Board of Directors. NSC CU's internal asset-liability management policy limited total real estate loans to 35% of total assets to minimize the risk of holding too many longer-term real estate loans. …
Robert J. Tokle - One of the best experts on this subject based on the ideXlab platform.
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Mortgage Concentration Risk in a Small Depository Institution
Journal of Critical Incidents, 2014Co-Authors: Robert J. Tokle, Joanne G. TokleAbstract:As Professor John Tallon sat in his fourth-floor office overlooking the tree-lined campus of Northeastern State College (NSC) in December, 2012, his mind wandered from his task of grading term papers to the Board of Directors meeting for NSC Credit Union (NSC CU) scheduled for later that day. As a board member, he was elected to represent the students, faculty, staff, and alumni of NSC who were members of the credit union. NSC CU had emerged from the ashes of the 2008-2009 financial crisis virtually unscathed; yet Tallon felt uneasy as he considered the potential consequences of changing the credit union's policy on real estate loan limits, given the still fragile economy. The Board was about to consider whether or not to change NSC CU's internal policy limit on real estate loans. NSC CU's auto loan volume had recently declined, and with investments paying near-zero rates, it had been making more mortgage loans and had approached the allowable limit on real estate loans as a percent of assets. These real estate loans were currently profitable; credit risk was low with few delinquencies. However, the long-term nature of real estate loans engendered interest rate risk, which could endanger future profitability if interest rates increased. Tallon understood the ramifications of holding too many long-term assets during periods of rising interest rates. Unfortunately, it was not clear when interest rates would rise. Short-term interest rates had been near zero for the past four years, and in 2012, the Federal Reserve resolved to keep them there for another two to three years. Tallon wondered--should the credit union allow a greater proportion of assets in real estate loans, which, while profitable now, may eventually be a decision it would regret? Northeastern State College Credit Union NSC CU was a medium-sized credit union that had experienced modest growth and increased asset size, and maintained a healthy net-worth ratio (essentially a capital-to-asset ratio) of 9.1%. When assets increased, the denominator of this ratio became larger, making the overall ratio smaller. Net-worth ratios above 7% were considered well capitalized by the National Credit Union Administration (NCUA). Interest Rate Risk The two major types of risk Depository Institutions face were credit and interest rate risk. Credit risk occurred when borrowers default and the loans were not paid back in full. Interest rate risk occurred when changes in interest rates reduced profitability, as transmitted through the asset/liability structure. Typically, Depository Institutions had longer-term assets and shorter-term liabilities. When interest rates increased, Depository Institutions needed to increase interest rates on deposits to retain them; they can raise these rates quickly because deposits were very shortterm. New loans were also made at the higher rates, but loans already made tended to stay on balance sheets for some time since they had maturities of much longer than one year. Consequently, when interest rates increase, profitability was typically squeezed for banks and credit unions. A classic case of interest rate risk occurred in the Savings and Loan industry in the 1980s. High inflation led to higher interest rates and a tight Federal Reserve monetary policy. Rates on the 3month Treasury bill reached over 15% in 1981 (Mishkin, 2013). Savings and Loan Institutions had to pay higher rates on their deposits, while they could not re-price their previously made mortgage loans. The average rate paid on deposits by Savings and Loans in 1982 was greater than the average rate received on their loans. By 1989, 1,066 out of 2,878 Savings and Loan Institutions were unprofitable (White, 1991). NSC CU's Asset-Liability Management Committee (ALMC) monitored its assets and liabilities and proposed any needed interest rate and policy changes to the NSC CU Board of Directors. NSC CU's internal asset-liability management policy limited total real estate loans to 35% of total assets to minimize the risk of holding too many longer-term real estate loans. …
Masami Imai - One of the best experts on this subject based on the ideXlab platform.
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local economic effects of a government owned Depository Institution evidence from a natural experiment in japan
2011Co-Authors: Masami ImaiAbstract:Beginning in 2000, Japan’s postal saving system experienced a rapid outflow of funds as a large number of 10-Year Postal Saving Certificates were maturing. This paper exploits this episode as a natural experiment in order to investigate the effects of a government-owned Depository Institution on local economic performance. The results show that the prefectures in which local funds were more heavily invested in the postal saving system in the early 1990s tended to experience a larger shift of funds away from the postal saving system and that these prefectures performed better in terms of output and small business creation in the early 2000s.
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Crowding-Out Effects of a Government-Owned Depository Institution: Evidence from a Natural Experiment in Japan
2008Co-Authors: Masami ImaiAbstract:Beginning in 2000, Japan’s government-owned postal saving system experienced a rapid outflow of funds as a large number of 10-year fixed-rate Postal Saving Certificates (PSCs) that had been purchased during the period of high interest rates in the early 1990s were maturing. This paper exploits this episode as a natural experiment to investigate the crowding-out effects of a government-owned Depository Institution on local economies. The panel data of 47 prefectures from 1995 to 2004 show that the prefectures where local funds were heavily invested in the postal saving system in the early 1990s tended to experience a larger shift of funds into private banks from the postal saving system in the early 2000s, suggesting that the exogenous maturing of PSCs was in part responsible for the observed shifts in the allocation of local funds. More importantly, the (instrumented) flow of local funds to private banks from the postal saving system has statistically robust and economically important positive effects on local output and on the number of small firms, but not on the number of large firms. These results provide empirical support for the view that a government-owned Depository Institution has crowding-out effects on local economies and, in particular, on small firms that rely on local banks in direct competition with government-owned Depository Institutions for local deposits.
Philip O Price - One of the best experts on this subject based on the ideXlab platform.
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the dodd frank wall street reform and consumer protection act
2011Co-Authors: Nathan L Morris, Philip O PriceAbstract:Preface The Dodd-Frank Wall Street Reform & Consumer Protection Act: Issues & Summary Brief Summary of the Dodd-Frank Wall Street Reform & Consumer Protection Act The Dodd-Frank Wall Street Reform & Consumer Protection Act: Systemic Risk & the Federal Reserve The Dodd-Frank Wall Street Reform & Consumer Protection Act: Titles III & VI, Regulation of Depository Institutions & Depository Institution Holding Companies Hedge Funds: Legal History & the Dodd-Frank Act The Dodd-Frank Wall Street Reform & Consumer Protection Act: Regulations to be Issued by the Consumer Financial Protection Bureau The Dodd-Frank Wall Street Reform & Consumer Protection Act: Title VII, Derivatives Dodd-Frank Act, Title VIII: Supervision of Payment, Clearing, & Settlement Activities The Dodd-Frank Wall Street Reform & Consumer Protection Act: Title IX, Investor Protection The Dodd-Frank Wall Street Reform & Consumer Protection Act: Executive Compensation The Dodd-Frank Wall Street Reform & Consumer Protection Act: Title X, The Consumer Financial Protection Bureau The Dodd-Frank Wall Street Reform & Consumer Protection Act: Standards of Conduct of Brokers, Dealers, & Investment Advisers Rulemaking Requirements & Authorities in the Dodd-Frank Wall Street Reform & Consumer Protection Act The Dodd-Frank Wall Street Reform & Consumer Protection Act: Changes to the Regulation of Derivatives & Their Impact on Agribusiness Index.
John H. Wood - One of the best experts on this subject based on the ideXlab platform.
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The Causes and Costs of Depository Institution Failures - The causes and costs of Depository Institution failures
Southern Economic Journal, 1995Co-Authors: Allin Cottrell, Michael S. Lawlor, John H. WoodAbstract:Contributing Authors. 1. Introduction A.F. Cottrell, et al. 2. S&L Closures and Survivors: Are There Systematic Differences in Behavior? J.R. Barth, et al. 3. Deregulation Gone Awry: Moral Hazard in the Savings and Loan Industry R.A. Cole, et al. 4. Underlying Determinants of Closed-Bank Resolution Costs W.P. Osterberg, J.B. Thomson. 5. Federal Reserve Lending to Banks that Failed: Implications for the Bank Insurance Fund R.A. Gilbert. 6. The Savings and Loan Debacle: Moral Hazard or Market Disaster? G.A. Lilly. 7. What Are the Connections Between Deposit Insurance and Bank Failures? A.F. Cottrell, et al. 8. Bank Failures as Poisson Variates: A Reappraisal N. Davutyan. 9. A Triggering Mechanism of Economywide Bank Runs Sangkyun Park. 10. Herd Behavior or Animal Spirits: A Possible Explanation of Credit Crunches and Bubbles T.S. Mondschean, R.A. Pecchenino. Index.
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the causes and costs of Depository Institution failures
Southern Economic Journal, 1995Co-Authors: Allin Cottrell, Michael S. Lawlor, John H. WoodAbstract:Contributing Authors. 1. Introduction A.F. Cottrell, et al. 2. S&L Closures and Survivors: Are There Systematic Differences in Behavior? J.R. Barth, et al. 3. Deregulation Gone Awry: Moral Hazard in the Savings and Loan Industry R.A. Cole, et al. 4. Underlying Determinants of Closed-Bank Resolution Costs W.P. Osterberg, J.B. Thomson. 5. Federal Reserve Lending to Banks that Failed: Implications for the Bank Insurance Fund R.A. Gilbert. 6. The Savings and Loan Debacle: Moral Hazard or Market Disaster? G.A. Lilly. 7. What Are the Connections Between Deposit Insurance and Bank Failures? A.F. Cottrell, et al. 8. Bank Failures as Poisson Variates: A Reappraisal N. Davutyan. 9. A Triggering Mechanism of Economywide Bank Runs Sangkyun Park. 10. Herd Behavior or Animal Spirits: A Possible Explanation of Credit Crunches and Bubbles T.S. Mondschean, R.A. Pecchenino. Index.